Demand dramatically outpaces supply for banking services worldwide by an estimated USD$1.6trn a year, according to the ICC Banking Commission and the Asian Development Bank.
Unmet demand for trade finance in the global market was reported by 61% of banks, in a recent Banking Commission Survey.
Only 21% of respondents believe traditional trade finance will grow in the future, according to the International Chamber of Commerce (ICC) Banking Commission’s 2017 report titled ‘Rethinking Trade and Finance’. Despite this low figure, trade finance revenues have increased overall, with The Boston Consulting Group predicting revenue growth of roughly 4.7% a year.
Compliance and regulatory requirements were the main culprits when it comes to limiting short-term trade finance, with over 68% citing these two factors as having the largest negative impact. Only 11% pointed to capital constraints as a significant hindrance.
Fintech: collaborate or compete
About half of respondents expect most of trade flow processes to be digitised by 2027. Meanwhile, roughly 50% expect this technological evolution to take 10-25 years. Digitalisation and technology are important areas of focus, including fintech and fast-emerging platforms for nearly 44% of those surveyed.
There is plenty of optimism around the digitalisation of trade finance, but only 12% of respondents are seeing market uptake and nearly 40% believe there is limited progress in this area. Almost 18% said that technical capabilities and technology are ahead of trade finance business practice.
However, the relationship between traditional companies and fintechs is evolving from competition to collaboration, with only 1.4% of respondents viewing the competitive offering of fintechs as a threat to banks’ positions as the key providers of trade finance. Barclays, for example, recently opened Europe’s largest fintech co-working space in Shoreditch, London.
Indeed, the fintech evolution or extinction may be the only two options for traditional banking services, as 57% of respondents believe traditional trade finance will exhibit little or no growth and 22% think it will decline outright year-on-year.
SMEs financing is ‘critical’
In the report, the ICC and the Banking Commission have voiced their support for open, rules-based and inclusive multilateral trade. John Danilovich, ICC secretary general, says: “The results of the survey underscore the chronic shortfall of trade finance for small business – as recently recognised by the United Nations (UN). Addressing the trade finance gap must be a central priority for the G20 [Summit in Hamburg this week] to deliver on its commitment to support inclusive growth and enhanced job creation.”
Unsurprisingly, 46% identify multinational and large corporates as the highest priority clients for their trade finance business. Only a quarter favour middle market clients and less than 20% said that micro and small and medium-sized enterprises (SMEs) were their priority.
Daniel Schmand, ICC Banking Commission chairman, says: “Championing trade and ensuring access to adequate levels of financing for SMEs is more critical now than ever before. Free trade generates economic growth and jobs across the world, while also maintaining a consistently low-risk profile across products.”
If you are interested in this topic, please take a moment to take our 2017 Transaction Banking Services Survey today to get your free advanced copy of the report. The research builds on four years of data on the key drivers and issues faced by providers and users of transaction banking services. Your answers will be treated in the strictest confidence.